Germany - Banking and securities

The central banking system of Germany consists of the German Federal
Bank (Deutsche Bundesbank), currently located in Frankfurt am Main (but
which is expected to move to Berlin, the capital), one bank for each of
the Länder (Landeszentralbanken), and one in Berlin, which are
the main offices for the Federal Bank. Although the Federal Bank is an
independent institution, the federal government holds the bank's
capital and appoints the presidents as well as the board of directors;
the Central Bank Council acts as overseer. All German banks are subject
to supervision by the German Federal Banking Supervisory Authority
(Bundesaufsichtsamt für das Kreditwesen) in Berlin.

The Federal Bank is the sole bank of issue. Until the advent of the euro
in 1999 it set interest and discount rates. These functions are now the
domain of the European Central Bank (ECB). However, the Federal Bank
maintains a leading role in domestic banking. The largest commercial
banks are the Deutsche Bank, Dresdner Bank, and Commerzbank. In 1997
Germany had 232 commercial banks, including the "big
three," 56 subsidiaries or branches of foreign banks, and 80
private banks. There are also 13 central giro institutions. In addition,
there are 657 savings banks and 18 credit institutions with special
functions, including the Kreditanstalt für Wiederaufbau
(Reconstruction Loan Corporation), which is the channel for official aid
to developing countries. In all, there were over 45,000 bank offices in
2002. The German financial system includes just under 2,700 small
industrial and agricultural credit cooperatives and allied institutions,
in addition to four central institutions; 33 private and public mortgage
banks that obtain funds from the sale of bonds; the postal check and
postal savings system; and 34 building societies. In April 2000, a
proposed merger between two of the "big three", Deutsche
Bank and Dresdner Bank, collapsed. The deal would have reduced operating
costs since by relieving both banks of their branch networks.

After the Bundesbank just missed its target range for M3 growth for 1996
of 4% to 7%, it decided on a two-year target for monetary supply growth
to cover the 1997-98 period leading up to the planned hand-over of
responsibility to the ECB on 1 January 1999.

In 1996 Moody's Investments Service capped an extremely poor year
for Deutsche Bank by reducing its triple A rating to Aa1. This reflects
the fact that elite banks are finding it harder to retain the triple A
rating as banking becomes internationally more competitive. Deutsche
Bank announced that it hoped to shed 1,300 employees through attrition
by 2000.The International Monetary Fund reports that in 2001, currency
and demand deposits—an aggregate commonly known as M1—were
equal to $544.8 billion. In that same year, M2—an aggregate equal
to M1 plus savings deposits, small time deposits, and money market
mutual funds—was $1,849.3 billion. The money market rate, the
rate at which financial institutions lend to one another in the short
term, was 4.37%.

Under the constitution, the governments of the Länder regulate
the operations of stock exchanges and produce exchanges. Eight stock
exchanges operate in Berlin, Bremen, Düsseldorf, Frankfurt,
Hamburg, Hannover, Munich, and Stuttgart. Germany has several other
independent exchanges for agricultural items. While stock sales have
remained fairly steady in recent years, the bond-debture total has risen
dramatically. There are no restrictions on foreign investments in any
securities quoted on the German stock exchanges. However, a foreign (or
domestic) business investor that acquires more than 25% of the issued
capital of a German quoted company must inform the company of this fact.
The most notable recent banking legislation is the January 2002
elimination of the capital gains tax on holdings sold by one corporation
to another.

User Contributions:

Comment about this article, ask questions, or add new information about this topic: